Adaptation of performance management systems to changing organizations’ performance drivers

1. Adaptation of performance management systems to changing organizations’ performance drivers [first draft of international research project] Submitted by: Jaroslav Wagner, University of Economics, Prague, Czech Republic

2. Premises for research(What we want to do and achieve?) • To enhance research on performance management issues for business firms in the Central and Eastern Europe Countries • Respecting contemporary research findings • Recognizing and analyzing crucial external and internal determinants of performance as dimensions that encourage business growth • To improve integration of knowledge base introduced by managerial and controlling theories and concepts with professional experiences from business sector specialists

3. Central research hypothesis Changes in external business environment and in internal characteristics of business process cause alteration of key drivers of companies’ performance. Recognizing of changing dimensions and their integration in performance management systems influence the opportunity for survival and growth of the company significantly.

4. Definition of performance • The ability of company to achieve its goals • “What are the right things we can/shall do?” • Roots: Strategy formulation/ definition and goals setting • Manifested by effectiveness of company • The ability of company to realize it in a rational way • “How to realize them right?” • Roots: Strategy implementation/transformation and management control • Manifested by efficiency of organizational processes

5. Dimensions of performance focused in research project • Three crucial dimensions examined in correspondence with both components of performance definition: • Ethical • Basis: managerial view on human behaviors and motivation • Focus: organizational ethical control systems emphasizing compensation and rewarding systems • Environmental • Basis: stakeholder approach to Corporate Governance issues • Focus: environmental accounting and realization of concept of sustainability growth • Innovational • Basis: intellectual capital as key performance driver • Focus: control systems for innovational processes emphasizing efficiency measures for innovational processes evaluation

6. Ethical dimension • Hypothesis: Separating owners` and managers` role in large companies, differences in motivation and potential goals incongruence initiate need for formulation of organization's ethical code and implementation of ethical control system in these companies. • Related questions: • Which management accounting tools serve as information, communication or control element of organization's ethical control system? • Are these tools implemented consistently through the hierarchy of organizational structure?

7. Environmental dimension • Hypothesis: Global environmental agenda influences accountability and environmental management accounting in business sector. Companies monitor and evaluate their impact on environment increasingly which is significant for reduction of this negative impact. • Related questions: • Which concepts and approaches of environmental accounting are realized in inspected companies? • Does the realization of sustainability growth concept influence Corporate Governance issues?

8. Innovational dimension • Hypothesis: Innovational processes represent key performance driver nevertheless they bear enormous costs and risk. Companies measure and control related costs and effects to enhance efficiency and diversify risk. • Related questions: • Which management accounting tools are used for control of innovational processes? • How effects and probability of innovational processes’ impact can be measured? • What approaches can be applied to diversify risk and prevent pitfalls of innovational processes?

9. Focused performance dimensions in extended BSC framework Environmental SHAREHOLDERS VISION AND STRATEGY STAKEHOLDERS ADAPTING AND INNOVATING PROCESSES HUMAN AND ORGANIZATIONAL CAPITAL Innovational Ethical

10. Comments at the first meeting • There's no way of showing that a specific critical success factor has impact on corporate financial performance. That research direction would be a far too generalised one. • Environmental reporting. We will be using the wider concept of ER – covering both environmental and societal issues according to the concept of sustainable development. For greater acceptance by target audience we will use the „buzz“ words such as Corporate Social Responsibility. • Harmonisation/congruence between strategy and environmental/CSR activities can be studied. See Kaplan's Strategic Alignment and Porter's work on whether CSR has a positive impact.

11. Research Design • Two-phase research process proposed: • First phase • Empirical research based on questionnaire realized in specified sample of business companies in participating countries • For increasing of data validation two different respondents will be contacted in each company – CEO or other member of top-management and chief of controlling department • Data will be analyzed by quantitative method primarily • Second phase • Research based on interviews with selected companies contacted in first phase • According to conditions different case studies can be focused on particular dimension

12. Comments at the first meeting • The research design will have to balance global and local research practices not to force all local differences into one global template (and thus erase them). A possible solution is to make the first research phase network-wide with a single research framework for all local partners followed by the second phase with a single research methodology (case studies) emphasising/highlighting local specific issues. • How will performance measurement systems (PMS) and performance drivers be measured and researched? How do we want to refer to changes in them? How to describe the state before and after? Are we able to describe all aspects of PMS? Should we focus only on organisational or information aspects of drivers? We will also have to describe relationships between the different aspects...

13. Sample specification • Non-financial business companies • For comparison reasons sample determination according to industry is applied • Following industries are suggested for research • Automotive industry • Food industry • Telecommunications

14. Comments at the first meeting • When speaking about automotive industry what kind of firms do we have in mind? Are they final product (car) producers or second tier/third tier suppliers? The same question is valid for telecommunications and food industries. • Usually it is wiser to adopt a much narrower focus, may be a single one (out of the proposed three)? How shall it be chosen? All of them have own methodological limits. What if we discussed that with our research network partners? They might feel better about some of them due to their sources of financing – they may say “we are interested in axis 1 because we can obtain money for that particular issue...”

15. Participating countries • Czech Republic • University of Economics, Prague • Germany • International Performance Research Institute • Hungary • Corvinus University, Budapest • Poland • University of Lodz • Estonia • University of Tartu

16. Next steps … • All partners are asked to give feedback to first draft and provide their ideas for common research. • A General Meeting with all partners in Prague is proposed for June 24-27 or July 1-4 (to be confirmed).